webinar: managing long-term price risks in ppas · 6/30/2020 · 15:45 –end of the webinar....
TRANSCRIPT
Webinar: Managing long-term price risks in PPAsViviana Ciancibello, EEX & Cyriel de Jong, KYOS
Agenda
15:00 – Ewout Eijkelenboom (KYOS), Introduction to the webinar
15:05 – Viviana Ciancibello (EEX), Hedging with long-term power futures
• Using the standard Base Futures to hedge long-term price risk
• The finer details: initial margin and variation margin
• A look at long-term hedging activity in EEX Spanish Power
• What’s next for hedging renewable energy price risk on exchange?
15:20 – Cyriel de Jong (KYOS), Forecasting power prices and capture rates
• Financial exposures of renewable energy projects
• What will be the power price in 2030?
• The cannibalization effect and capture rates
• Forecasting long-term power prices and capture rates
15:35 – Q&A and discussion
15:45 – End of the webinar
Hedging with Long-Term
Power Futures
KYOS Webinar
30 June 2020
EEX Power Derivatives are listed in 20 EU market
areas and benefit from a wide network of traders
© EEX AG, 2020 4
Power Futures
Belgian Future Bulgarian Futures
(PXE)
Czech Future
Dutch Future
EEX GB Power Future
French Future
German Intraday Cap/Floor Future
Greek Base Future
Hungarian Future (PXE)
Italian Future
Nordic-Future
Phelix-AT Future
Phelix-DE Future
Phelix-DE/AT Future
Polish Future
Romanian Future (PXE)
Serbian Future
Slovakian Future (PXE)
Slovenian (PXE)
Spanish-Future
Swiss-Future
Power Options
Phelix-DE Options
Phelix-DE/AT Options
French Base Options
Italian Base Options
Spanish Base Options
EEX connects
287 trading
participants
from 30
countries
How are EEX Members active in PPAs?
EEX Members buy Power
via Long-Term PPAs
and build RE assets
EEX Members provide
balancing services on Spot
& hedge via Futures
RE Developers sell Power via
Long-Term PPAs
EEX Members sell Power
via LT Corporate PPAs
Banks provide financing
once PPA is in place
€
€
€€
€
© EEX AG, 2020 5
6
EEX Power Derivatives Curves
© EEX AG, 2020
Base Peak
Day WkEnd Week Month Quarter Season Year Day WkEnd Week Month Quarter Season Year
DE/AT
(Phelix)14 2 5 10 11 6 14 2 5 10 11 6
DE
(Phelix)14 2 5 10 11 6 14 2 5 10 11 6
AT
(Phelix)14 2 5 10 11 6 14 2 5 10 11 6
FR 14 2 5 7 7 6 14 2 5 7 7 6
IT 14 2 5 7 7 6 14 2 5 7 7 6
ES 14 2 5 7 7 6
NL 14 2 5 7 7 6 14 2 5 7 7 6
BE 7 7 6
CH 14 2 5 7 7 6
Nordic 5 7 7 6
UK 14 2 5 4 4 4 2 5 4 4 4 2
GR 7 7 6
CZ 14 2 5 7 7 6 14 2 5 7 7 6
PL 7 7 6 7 7 6
SK 7 7 6 7 7 6
HU 14 2 5 7 7 6 14 2 5 7 7 6
RO 5 7 7 6 5 7 7 6
SI 5 7 7 6 5 7 7 6
RS 5 7 7 6 5 7 7 6
BG 5 7 7 6
It is already possible to hedge up to 6 years in advance in most
EEX Power Derivatives Markets.
Managing Renewable Energy Price Risk with Base
Futures requires a Hedging Strategy
© EEX AG, 2020 7
▪ Base Futures are a best-fit product and attract the most liquidity, creating a strong price signal and
opportunities for trading at fair market prices
▪ To use the Base Futures to manage the risk of a wind or solar profile, a Hedging Strategy needs to
be designed to translate the variable generation profile into a constant Base load profile
▪ Different Hedging Strategies can be employed, such as a value-neutral hedge
Example 1: 23rd Long-Term hedge on Spanish
Power cleared on 10.01.19
© EEX AG, 2020 8
▪ A 2 MW long-term hedge was cleared in Spanish Power on 10 January 2019, with an
initial margin requirement of 167,877 EUR
▪ The initial margin percentage of the notional value of the trade was 3.71%
▪ The execution price of each trade was 52.54 EUR
Trade
DateProduct
Expiry
Year
Expiry
MonthTrade Price
Initial
Margin per
Contract
Lots
(MW)
Initial Margin
(in EUR)
Trade Volume
(in MWh)Notional Value
10/01/2019
Spanish Power Base Month 2019 2 52.54 € 2,903 € 2 5,806 € 1,344 70,614 €
Spanish Power Base Month 2019 3 52.54 € 2,608 € 2 5,216 € 1,488 78,180 €
Spanish Power Base Quarter 2019 4 52.54 € 6,880 € 2 13,759 € 4,368 229,495 €
Spanish Power Base Quarter 2019 7 52.54 € 7,264 € 2 14,529 € 4,416 232,017 €
Spanish Power Base Quarter 2019 10 52.54 € 6,163 € 2 12,326 € 4,416 232,017 €
Spanish Power Base Year 2020 12 52.54 € 15,196 € 2 30,393 € 17,568 923,023 €
Spanish Power Base Year 2021 12 52.54 € 13,140 € 2 26,280 € 17,520 920,501 €
Spanish Power Base Year 2022 12 52.54 € 11,826 € 2 23,652 € 17,520 920,501 €
Spanish Power Base Year 2023 12 52.54 € 17,958 € 2 35,916 € 17,520 920,501 €
167,877 € 86,160 4,526,846 €
Initial Margin in % of Notional Value 3.71%
Example 2: 33rd Long-Term Hedge on Spanish
Power cleared on 03.26.2020
9
▪ A 5 MW long-term hedge was cleared in Spanish Power on 26 March 2020, with an
initial margin requirement of 302,833 EUR
▪ The initial margin percentage of the notional value of the trade was 4.37%
▪ The execution price of each trade was 39.50 EUR
▪ This deal brings the total volume of long-term hedges in Spanish Power to 15.8 TWh
Trade
DateProduct
Expiry
Year
Expiry
MonthTrade Price
Initial
Margin per
Contract
Lots
(MW)
Initial Margin
(in EUR)
Trade Volume
(in MWh)Notional Value
03/26/2020
Spanish Power Base Year 2021 12 39.50 € 20,674 € 5 103,368 € 43,800 1,730,100 €
Spanish Power Base Year 2022 12 39.50 € 13,753 € 5 68,766 € 43,800 1,730,100 €
Spanish Power Base Year 2023 12 39.50 € 13,315 € 5 66,576 € 43,800 1,730,100 €
Spanish Power Base Year 2024 12 39.50 € 12,825 € 5 64,123 € 43,920 1,734,840 €
302,833 € 175,320 6,925,140 €
Initial Margin in % of Notional Value 4.37%
© EEX AG, 2020
Variation Margin depends on Daily Price Volatility
© EEX AG, 2020 10
Price (
EU
R/M
Wh)
Price (
EU
R/M
Wh)
Covid-19
Covid-19
▪ It is reasonable to expect volatile price movements in near-term contracts;
however long-term prices historically remain quite flat
▪ Even a market shock such as Covid-19 had a more subdued effect on the
long end of the curve
First ever Long-Term Hedge in Polish Power
cleared on 18 December 2019
11
▪ A 5 MW long-term hedge was cleared in Polish Power on 18 December 2019, with an
initial margin requirement of 933,294 EUR
▪ The initial margin percentage of the notional value of the trade was 10.2%
Trade
DateProduct
Expiry
Year
Expiry
MonthTrade Price
Initial
Margin per
Contract
Lots
(MW)
Initial Margin
(in EUR)
Trade Volume
(in MWh)Notional Value
18/12/2019
Polish Power Base Year 2022 12 52.19 € 12,264 € 5 61,320 € 43,800 2,285,922 €
Polish Power Base Year 2023 12 52.19 € 58,078 € 5 290,390 € 43,800 2,285,922 €
Polish Power Base Year 2024 12 52.19 € 58,238 € 5 291,190 € 43,800 2,285,922 €
Polish Power Base Year 2025 12 52.19 € 58,079 € 5 290,394 € 43,920 2,292,185 €
933,294 € 175,320 9,149,951 €
Initial Margin in % of Notional Value 10.2%
© EEX AG, 2020
Long-Term Hedging in Polish Power demonstrates
trust in EEX and ECC as its clearing house
© EEX AG, 2020 12
EEX Polish Power Traded Volume
Long-Term
Hedge
▪ EEX provides a secure marketplace for multinational players to
easily access long-term hedging for their assets across Europe
New Renewables investments are driving demand
for long-term risk management
© EEX AG, 2020 13
▪ EEX members have been increasingly demanding long-term hedging capability in order to manage
risk from long-term contracts such as PPAs, primarily used to fund the construction of new
Renewable Energy assets
▪ EEX is working towards extending to Cal+10 in markets with high potential of PPA activity: Spain,
Germany and Italy, to facilitate long-term hedging and more PPA development
▪ PPAs, combined with hedging price risk on exchange, provides a market-based solution to
achieving EU renewable energy targets instead of Member States relying on onerous subsidies
(e.g. CfDs)
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Merchant Renewables are the Next Phase in the
Energy Transition
14
PPAs are one enabler of new Renewable Energy
investments….
Major energy players are already hedging their long-term
price risk with standard EEX products.
…but the market is in need of more standardisation and
better risk management products in order to grow and
meet the EU’s ambitious targets.
EEX will ensure we remain part of our Members’ long-term
hedging strategy, and explore opportunities to build new
products for risk management of Renewable Energy.
© EEX AG, 2020
!
Please get in touch with any
questions:
Viviana Ciancibello
Senior Business Developer
European Power Derivatives
EEX
Forecasting power prices and capture rates
30 June 2020Managing long-term price risks in PPAs
Cyriel de Jongwww.kyos.com, +31 (0)23 5510221, [email protected]
15:20 Presentation
• Financial exposures of renewable energy projects
• What will be the power price in 2030?
• The cannibalisation effect and capture rates
• Forecasting long-term power prices and capture rates
15:35 – Q&A and discussion
15:45 – End of the webinar
Agenda
1
Corporate PPAs
2
Source: BloombergNEF
GW
cap
acit
y p
er y
ear
Corporate PPAs have a small share, but it is growing.
Other PPAs are with utilities.
Each PPA may distribute the value components differently, but ultimately they have to land in someone’s pocket.
Value components of renewable power
3
GoOvalue
Capture price
(discount)
Why worry about power price in 2030? Or 2035?
• Liquid power trading just 3 years ahead (hopefully increasing)
• Projects will not earn back investment in 3 years, nor in 5 years
• In the next 10-20 years, market will undergo transformation
What will be the power price in 2030?
4
Fundamental modelMarket
• Fundamental power market model
- Medium- to long-term price assesment
- Power plants optimise dispatch
- And energy storage too
• Main applications
- For investors: value deals, projects
- For power traders: forecast prices
- For consumers: buy at good price
• Kyos base case:
- 14 countries
- Using historical scenarios to forecast load and renewable production
Long-term power price forecast
5
Power plants
Fuel price forward curvesLoad, wind,
solar forecasts
Power plants
Load, wind, solar forecasts
Power plants
Load, wind, solar forecastsKyPF Model
Actual forecasts are per hour
KYOS Base Case – 14 European countries
6
• More renewable capacities:
• Produce a lot when prices are low
• Produce very little when prices are high
• Capture rate will go down if more renewables enter the market
• However, do not underestimate the market:
• Improved control over renewables → no negative prices
• Energy storage, demand response → dampen fluctuations
Cannibalisation effect
7
Asset Capture price Capture rate
Baseload 28.97 100%
Wind on-shore 27.09 93%
Solar 27.24 94%
Spanish power market
First half of 2020
• Use fundamental model: hourly prices
• Use actual weather data from a particular year to simulate:
• Renewable production in the market → market price
• Renewable production of the asset → capture price
Forecast future capture price
8
This is an example (German solar).
KYOS can generate capture rate forecast
for any asset.
What are the challenges?
• Long-term power price risk for renewable projects / PPAs
• No security from FiTs, limited from market (though improving)
• Fundamental model to make forecast and calculate sensitivities of base price plus capture rates
What do we provide?
• Easy-to-use software: KYOS Analytical Platform
• Insightful data and reports
• Expertise of dedicated team
KYOS Energy Analytics
9
More than 100 corporate clients using KYOS software and services
Thank you
Q&A session
For more info:www.kyos.com/renewables
Our PPA Insight papers:https://www.kyos.com/ppa-insights-overview-articles